Smith: The Green New Deal would spend the U.S. into oblivion

Noah Smith

Tuesday

Feb 12, 2019 at 5:05 PM

Skeptics of Representative Alexandria Ocasio-Cortez's promise of a Green New Deal were worried the plan would be a Trojan Horse for unrealistic and ruinously expensive economic proposals that have little to do with stopping climate change. The unveiling of the plan gives them more reason for worry. Ocasio-Cortez's Green New Deal appears to take every big spending idea that has emerged on the political left in recent years and combine them into one large package deal, with little notion of how to pay for them all.

The Green New Deal as introduced to Congress is in the form of a non-binding resolution laying out a series of goals. The wording of the resolution is ambitious, but vague. More concerning are the details of an online FAQ that appeared on Ocasio-Cortez's website but was later taken down. The FAQ contained important details that are not included in the resolution itself. On Twitter, Ocasio-Cortez's chief of staff, Saikat Chakrabarti, referred to the FAQ as a "bad copy," and promised to release a revised version.

But the original FAQ may give insight into the Ocasio-Cortez camp's true goals. And it shows that although the Green New Deal bills itself primarily as an environmental policy and jobs program, the most expensive items are enormous new entitlements paid for by unlimited deficit spending.

To be fair, it's important to discuss the good ideas in the plan. The Green New Deal would retrofit all American buildings and factories to be carbon-neutral, electrify all transportation, and switch the entire electrical grid to carbon-neutral energy sources. These goals are highly ambitious, but they're good targets. Ocasio-Cortez's plan correctly recognizes that carbon taxes wouldn't be enough to prompt private companies to do all these things on their own, and that large-scale government-funded infrastructure is required. Furthermore, a focus on scaling up clean energy would push the technology forward. That would help other countries — where most of the world's carbon emissions are produced — to follow in the U.S's footsteps.

But these environmental policies wouldn't be the most costly items on the list. Among other things, the now-removed FAQ stipulates that every American would be guaranteed the following:

The plan thus appears to combine a federal job guarantee, free college and single-payer health care. Depending on how one interprets the guarantee of "economic security" to all those who are "unwilling to work," it might also include a universal basic income — something that was mentioned in an earlier Green New Deal proposal. The guarantee of universal affordable housing is, to my knowledge, new.

How much would these proposals cost? It's hard to know. Sen. Bernie Sanders's Medicare for All proposal was predicted to cost about $3.2 trillion a year. Switching to renewable energy would conservatively cost more than $400 billion annually. Even though the cost is coming down as technology improves, net-zero emissions retrofits of every building in the country would be expensive — optimistically, perhaps $88,000 for a townhouse, and presumably much more for free-standing homes. Assuming $100,000 per home, that comes to about $1.4 trillion a year over a decade. Factories, office buildings, stores, etc. would cost much more per building, but there are far fewer of them — about 5.6 million. If each one costs $500,000 to retrofit, that's about $300 billion more per year.

For universal basic income, the cost has been estimated at $3.8 trillion a year.By comparison, free college would be cheap at about $47 billion a year. Affordable housing for the entire nation could cost a lot, depending on what that means, but let's ignore that for now.

So this quick, rough-cost estimate — which doesn't include all of the promises listed in the FAQ — adds up to about $6.6 trillion a year. That's more than three times as much as the federal government collects in tax revenue, and equal to about 34 percent of the country's entire gross domestic product. And that's assuming no cost overruns — infrastructure projects, especially in the United States, are subject to cost bloat. Total government spending already accounts for about 38 percent of the economy, so if no other programs were cut to pay for the Green New Deal, it could mean that almost three-quarters of the economy would be spent via the government.

Most troubling, the Green New Deal's FAQ sidesteps the question of how to pay for the plan. This suggests the Green New Deal will be paid for with soaring deficits, which is dangerous. The plan's environmental spending proposals would be temporary, but the new entitlement programs would be permanent. If MMT is wrong, and if ever-expanding deficits cause runaway inflation, the result would be a devastating collapse of the nation's economy. Hyperinflation has never happened in the United States, but then again, neither has anything like the Green New Deal.

So although a big push for renewable energy is needed, the Green New Deal's vast program for economic egalitarianism could make it unworkable.

Noah Smith is a Bloomberg Opinion columnist and an assistant professor of finance at Stony Brook University.

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